Paying taxes on cryptocurrency can feel overwhelming, especially with the IRS tightening its grip on crypto transactions. Many investors worry about how to report their crypto gains without overpaying or triggering penalties. The good news is that the U.S. tax code offers several legal ways to reduce your tax burden and keep more of your profits.
Whether you’re trading Bitcoin, earning staking rewards, or dealing with NFTs, understanding your options can make a big difference. In this guide, we’ll break down the best ways to save on crypto taxes in the U.S. so you can stay compliant while maximizing your savings.
By the end of this guide, you’ll have a solid understanding of the US tax laws about cryptocurrency and be empowered to make informed decisions that can help you save on your crypto taxes.
How To Save Crypto Taxes In The USA?
Crypto taxes can feel like a wave that sweeps in a percentage of the profits from your pocket. To avoid this, you can use the following legal ways to reduce or save crypto taxes:
Tax Loss Harvesting
Tax loss harvesting allows you to reduce your tax liability by using capital losses to offset capital gains. If you sell, swap, or spend crypto at a loss, you don’t pay taxes on that loss. However, it’s important to report these losses, as they can help reduce your overall tax burden.
You can use up to $3,000 of your capital losses to offset ordinary income each year, further reducing your taxes. Capital losses don’t disappear after a year. You can carry them forward to offset future gains, so keeping a detailed record is essential. These losses can be used indefinitely, making tax loss harvesting a powerful tool to manage your crypto taxes in the US over time.
Use Capital Gains Tax Breaks
If your income falls below certain thresholds, you can avoid paying capital gains tax on your crypto profits. For single filers earning less than $44,626 a year, you won’t owe any tax on short- or long-term capital gains.
Married couples who file jointly can take advantage of this tax break if their combined income is below $89,250 per year. This means that both individuals in the marriage could potentially save on crypto taxes.
Heads of households also benefit from this break. If your income is below $59,751, you won’t have to pay capital gains tax on your crypto earnings.
HODLing
HODLing, or holding onto your crypto for the long term, can be a great strategy for saving on taxes in the USA. When you keep your crypto for more than a year, you qualify for long-term capital gains tax rates. These rates are significantly lower compared to short-term gains tax rates.
Short-term gains are taxed at the same rate as ordinary income, which can be quite high if you’re in a higher tax bracket. By holding your crypto for over a year, you can avoid those steep taxes and benefit from a lower rate, ranging from 0% to 20%.
Use Tax Deductions
The IRS offers various tax deductions and credits to help reduce your tax bill. You can choose between the standard tax deduction or itemizing your deductions, but you can’t use both. The standard deduction is faster to process, which is why many taxpayers prefer it. However, if you qualify for multiple deductions, itemizing may benefit you more in the long run.
Common tax deductions include student loan interest, child tax credits, medical expenses, and mortgage interest. Additionally, you can deduct contributions to retirement accounts like IRAs and 401(k)s. It’s wise to consult with an accountant to maximize your deductions
Gift or Donate Crypto
You can gift crypto to friends, family, or anyone else without worrying about taxes. The IRS allows you to gift up to $17,000 per person, tax-free. This rule also works well for married couples or civil partners, who can gift up to $34,000 in total without tax implications. It’s a smart way to manage your crypto holdings while keeping your tax bill lower.
Donating crypto to registered charities also helps reduce your tax burden. Donations are tax-deductible, so you can support a cause and lower your taxes at the same time. However, if your donation exceeds a certain amount, you’ll need to fill out Form 8283 and keep receipts or an appraisal for larger donations over $5,000.
Conclusion
Crypto taxation in the US presents unique challenges, but with proper planning and understanding, you can significantly reduce your tax liability. By implementing the strategies outlined in this guide, including tax-loss harvesting, optimizing your tax basis, and exploring tax-advantaged investment options, you can maximize your crypto returns while minimizing your tax burden.
Remember, the crypto tax landscape is constantly evolving. Staying informed about the latest tax laws and regulations is crucial for ensuring you remain compliant and minimize your tax exposure.
